Contura remains optimistic about metallurgical coal pricing and company sales due to tight global supply and steady demand, despite seeing weaker sales in the first quarter than originally projected, CEO Kevin Crutchfield said Wednesday.

“Notwithstanding the modest growth expectations in Europe and China [for met coal], the limited growth of new met mines, depletion of existing mines and challenged production at current mines will support a solid price going forward,” Crutchfield said on Contura’s fourth-quarter 2018 earnings call.

The market conditions that have been in place for the better part of two years indicate continued strength in the pricing environment, he added.

While Europe remains Contura’s main export destination, accounting for 44% of met exports, Crutchfield said, he emphasized India’s growing steel consumption and noted the country “as an increasingly key market to us.”

According to the World Steel Association, Crutchfield mentioned, India surpassed Japan in 2018 and became the second largest producer of steel, and in 2019 India is projected to surpass US steel consumption. India’s steel demand is forecasted to grow 7.3% in 2019, compared with Central and South American growth of 4.3% and European moderate growth of 1.7%.

EXPORT TROUBLES

“After a decent January this year, East Coast ports struggled in February due to weather-related issues, with met exports declining nearly 20% compared with February 2018 and approximately 15% compared with January 2019,” Crutchfield said. “Year to date,” he added, “East Coast shipments are down a modest 3.2%.”

Turkey in particular, Crutchfield said, has been an important market to Contura, sending approximately 750,000 mt to the country last year. However, he noted, the recent met tariffs in August 2018 from 5%-13.7% “have been difficult to overcome with early 2019 shipments to Turkey trailing our expectations.” But Contura is “now making headway in Turkey and expected to ship our first cargo in the second quarter timeframe with additional bids for future shipments in the works,” he said.

In Brazil, too, another key market, the producer has been facing difficulties with “aggressive pricing competition in the first quarter of this year,” Crutchfield said. “Given overall tightness we expect this to be a temporary phenomenon,” he added. “It’s vitally important to be disciplined and not chase pricing that undervalues our product.”

While first-quarter sales will be lower than originally expected, the producer will “best position [itself] for premium pricing in the rest of the year,” Crutchfield said.

So far this year, Contura has shipped about 300,000 mt less than anticipated, Crutchfield said.

In January, the Bristol, Tennessee-based company provided its 2019 guidance, projecting sales of 24.6 million-26.7 million mt from its Central Appalachian, Northern Appalachian and Trading and Logistics operations.

THERMAL SEGMENT

“However, now that the API2 has declined meaningfully since the end of 2018, it appears in the current year thermal exports might languish here in the near term,” he said.

However, the company does expect to recover those sales during the year, given premium pricing, Crutchfield said.

While the producer was able to take advantage of high thermal seaborne pricing in 2018 and export about 1 million mt, given the drop in seaborne pricing 2019 expotrs will be “nowhere close” to last year, he said.

Contura, so far, has sold “a couple hundred thousand” at a fixed price for 2019, Crutchfield said. The main worry, Crutchfield noted, was with the low seaborne pricing thermal will “come back into the US to try and find a home,” putting pressure on the US market, including inferior quality met coal.